Does your trader boyfriend use a lot of fancy jargon to explain what he does when he’s not throwing nerf footballs? Let’s break down some of the common investing terms so you can sound even smarter:
Long – Buying a stock you assume will increase in value. I.e. You buy Apple at $500 and sell it for $520 (and make a $20 profit). This is the most basic investing move. Winning strategy: Buy low, sell high.
Short – Selling a stock with the agreement to buy it back at a different price. Let’s say I buy Apple at $520 now, assuming the price is going to fall. I get $520 up front, but I have to buy it later so I have something to sell. If the price drops to $500, I make a $20 profit. Winning strategy: Sell high, buy low.
Bull – Bulls are optimistic about prices going up. A bull market is one where prices are going up and sentiment is good. Longs like bull markets. Reminder: a bull’s horns point upwards.
Bear – Bears are pessimistic and assume prices will fall. A bear market is one where prices are going down and sentiment is bad. Shorts like bear markets. Reminder: A bear drops to the ground.
Margin – Trading on margin means you’re borrowing money to pay with. You have to pay interest on this money to your stock account (i.e. Fidelity). How much margin you can trade on depends on how much money you have in your account. Think of it like putting money on your credit card.
The DJIA/The Dow – The Dow Jones Industrial Average. It’s an index of 30 major companies and is generally used as a barometer for how well the market is doing.
The S&P 500 – A group of 500 large stocks, mostly domestic. Similar to the DJIA it is supposed to represent the market as a whole.
Index Fund – A portfolio of many stocks, bonds, or other assets, that matches the assets of an existing group of stocks (i.e. the S&P 500). These are passively managed (a combination of stocks is bought and then is not updated based on market trends).
Mutual Fund – A mutual fund is a collection of stocks and bonds (and other assets) that trade as one whole asset. A mutual fund pools money from lots of investors and each investor owns a piece of the fund. Most mutual funds are actively managed (someone updated the portfolio based on how the market is performing).